Money is an intricate area and handling it, over and above your day job, is not an easy task. Most investors, at one point or the other, feel overwhelmed by the choices available. The more aware ones also arrive at the realisation that their own personal biases are making it difficult for them to commit their hard-earned money into the right financial instrument at the right time. Hence, they feel the need to obtain the services of a skilled professional who can help them take well-informed decisions.
No substitute for an expert: In the Mahabharata, we saw that Arjuna was a skilled warrior. He had capable brothers, a large army, and truth by his side. And yet he wanted Lord Krishna as his charioteer—to share his doubts and seek guidance at every step during the war. That is the nature of the human intellect. We question our decisions, harbour doubts, and hence seek advice from those more qualified than us in that area.
You may have figured out your financial needs and may possess a reasonably clear idea about the approach you need to take to meet them. But, to cite another example, you don’t treat a prolonged illness by simply studying about it. You visit qualified physicians because you know they are the experts.
Financial advisers are professionals with deep understanding and expertise in how investments work. The seasoned ones have weathered many market and economic cycles. The right ones can fulfil many objectives. They clear doubts and provide the investor with the best available financial options. They maintain and track investment plans and enable investors to achieve their desired goals. They think long-term. They help investors deal with information overload. Not only do they invest her money in the right financial instruments, they also help with tax planning and meeting various regulatory requirements.
Get an adviser early: A common belief one comes across on the internet is that an investor does not need a financial adviser at the start of her career or when her savings kitty is small. Many people suggest that the need for a financial adviser arises only once the investor has crossed a certain threshold and has large sums of money to invest. Nothing could be farther from the truth. Avoiding missteps at the start of the investment journey, and putting one’s money in the right financial instruments that can help build wealth is extremely crucial. In the early part of her life, an investor may have less money to invest, but she has time on her side. If she puts the money in the wrong instruments, she forgoes the opportunity to build wealth from an early age.
Financial advisers tailor their advice depending on the size of investors’ portfolios and their long-term financial goals. Creating a corpus for post-retirement needs, saving for children’s education and marriage, buying a house, meeting lifestyle-related expenses, and mitigating risk are not only for the mega-rich. They are an essential part of every individual’s financial planning.
Do the due diligence: Start by asking around some of the people you trust and obtain phone numbers. Many larger financial companies also offer advisory services nowadays. Review what they have to say on their web sites. This activity will help you create a shortlist of advisers.
After shortlisting, meet and speak to each one of them. There is no substitute to meeting a professional face-to-face and developing a personal equation. During the meeting, ask a number of questions to evaluate whether this person is right for you. Ask him about his educational qualifications and how much experience he has in the field of financial advisory. Listen to the promises he makes, then ask him about how he plans to achieve them.
During this conversation, you must also enquire about the fee he will charge for his services. Will he charge a flat fee or will it be a percentage of the amount invested? The primary point to keep in mind about fees is that the gain from hiring an adviser must far exceed the fee he charges you. Thus, going with someone who charges a low fee may not always be to your benefit. Sometimes, choosing one who charges more can also turn out to be a good decision if he offers superior advice and helps you avoid pitfalls. Get a sense of the average portfolio size the adviser handles. Generally, it is better to go with one who handles an average corpus size that is similar to what you have. If there is too big a disparity, he may not be able to cater to your needs well.
Also, get a sense of how much time the financial adviser is willing to invest in helping you meet your financial goals.
Finally, ask for referrals of a few clients he has already handled. If he refuses your request on this count, that should raise a red flag.
Apart from the questions mentioned above, feel free to resolve any other queries you may have before zeroing in on a financial adviser. The objective is to know the person well before you let him manage your financial portfolio.
If you have any doubts, restart the process. It’s your hard-earned money, and it’s your future. Be absolutely certain. Choose a financial adviser that makes the most sense to you, and with whom you feel most comfortable. Your goal should be to have a long-term relationship with your adviser, so having a high level of comfort is important. An excellent financial adviser can work wonders and assist you in growing your money. Since it is a crucial relationship, you cannot afford to make a mistake in your choice.
The writer is executive vice-president, YES Securities